Government offers humanitarian aid and security assistance in the hope of a stake in country's future energy industry

Britain is involved in a secret high-stakes dash for oil in Somalia, with the government offering humanitarian aid and security assistance in the hope of a stake in the beleaguered country's future energy industry.

Riven by two decades of conflict that have seen the emergence of a dangerous Islamic insurgency, Somalia is routinely described as the world's most comprehensively "failed" state, as well as one of its poorest. Its coastline has become a haven for pirates preying on international shipping in the Indian Ocean.

David Cameron last week hosted an international conference on Somalia, pledging more aid, financial help and measures to tackle terrorism. The summit followed a surprise visit by the foreign secretary, William Hague, to Mogadishu, the Somali capital, where he talked about "the beginnings of an opportunity'' to rebuild the country.

The Observer can reveal that, away from the public focus of last week's summit, talks are going on between British officials and Somali counterparts over exploiting oil reserves that have been explored in the arid north-eastern region of the country. Abdulkadir Abdi Hashi, minister for international cooperation in Puntland, north-east Somalia  where the first oil is expected to be extracted next month  said: "We have spoken to a number of UK officials, some have offered to help us with the future management of oil revenues. They will help us build our capacity to maximise future earnings from the oil industry."

Government offers humanitarian aid and security assistance in the hope of a stake in country's future energy industry

Britain is involved in a secret high-stakes dash for oil in Somalia, with the government offering humanitarian aid and security assistance in the hope of a stake in the beleaguered country's future energy industry.

Enough of Europe, though. Despite the eurozone's overwhelming ability to set the tone in terms of global investor sentiment, other economic indicators deserve attention  not least the price of oil.

Brent crude hit a nine-month high on Friday, breaking through $125 (£79) a barrel. While the black stuff remains $24 below the all-time nominal peak of July 2008, it is now above those levels in terms of both sterling and the euro. Oil prices are up 14pc since the start of the year. That's obviously bad news for the big Western energy-importers, the UK included, that are struggling to generate sustainable economic recovery.

Oil is soaring, we're told, because the International Atomic Energy Agency (IAEA) has just issued a report on the nuclear ambitions of Iran, the world's third-biggest crude exporter. Responding to European and US sanctions on its oil exports, due to bite in July, Iran refused inspectors access to the Parchin military complex where the IAEA has "reason to believe" a nuclear detonation device has been tested. As such, the risk of near-term anti-Iranian military action has apparently just risen sharply, not least because a US presidential election is looming into view.

Iran is obviously feeling emboldened. With the US withdrawing from Iraq, Tehran has warned that, in a bid to stem "outside meddling" in its affairs, it might try to disrupt energy exports from the Persian Gulf. This is no empty threat. Iran controls the northern shore of the Strait of Hormuz, the 20-mile wide pinch-point through which passes daily over a third of the world's seaborne oil shipments.

While the escalation of any kind of tension in the Middle East is obviously a serious matter, I don't accept that is why crude prices are high. The real reason perhaps less interesting, but no less important for that  is simple demand and supply. Global crude use is soaring, while the most important oil wells on earth are rapidly depleting.

In 2001, the world consumed 76.6m barrels of oil a day. Last year, just a decade on, global oil use was a hefty 89.1m barrels daily, 16pc higher. In 2011, the world economy was sluggish, with global GDP growth of 3.8pc, down from 5.2pc the year before. Yet world oil use still rose almost 1pc in 2011, with crude averaging $111 a barrel, more than 40pc up on 2010.

The International Energy Agency (IEA), the energy think-tank funded by oil-importing Western governments, tells us that crude demand is "declining remorselessly throughout the OECD [countries]". Given that the Western economies remain weak and the eurozone is heading for recession, the "advanced economies" are consuming less crude.

The fine print shows, though, that even IEA demand projections, which tend to be under-estimates, show OECD oil use falling just 0.9pc in 2012. Demand among the non-OECD countries, meanwhile, including the emerging giants of the East, is forecast to rise 2.8pc. Total global crude consumption, then, is still set to increase by another 1pc this year, mimicking the trend of 2011.

The "demand destruction" thesis is useful for Western governments desperate for cheaper oil  and it used to be true.
Not so long ago, OECD oil use was so important that a Western demand slow-down was enough to lower global crude prices, so helping us recover. But rampant non-OECD demand now accounts for half the world total  and rising. Chinese oil consumption has recently surged at an astonishing 7pc-8pc per annum and the People's Republic is now second only to the US in terms of overall oil use. Misguided Western attempts to print our way out of trouble using QE are also boosting crude demand and pushing up prices, as savvy investors seek an "anti-debasement" hedge.

On the supply side, while attention focuses on geopolitical flare-ups, the important trends relate to geology and finance. Since the 1960s, the discovery rate and size of new oil and gas fields has fallen markedly. More than four-fifths of the world's major fields are beyond peak production. The output of the world's largest 580 oil fields is declining at a 5.1pc annual average. Strategic oil traders now worry aloud about falling pressure at Saudi's Ghawar, Cantarell in Mexico and other giants fields. The credit-crunch, meanwhile, severely cut investment in exploration and well development, which is likely to have long term supply implications.

While there's lots of hype about tar sands and shale fuels, these new technologies often expend more energy than they create, while causing horrendous environmental and water-supply problems. Conventionally-produced crude will remain absolutely critical, and demand for it will spiral, until mankind bans the internal combustion engine, outlaws ammonium-based fertilisers, dismantles the global pharmaceutical industry and learns to live without plastic. I can't see that happening anytime soon.

Geo-political issues are important, of course. A major Gulf conflict would obviously see oil prices spike. But crude is now expensive not due to political argy-bargy but because of the fundamental truths of demand and supply. Meanwhile, Western share prices keep rising.

What, are we finally going to get involved in a war that might lead to some sort of profit?

I have little doubt that HMG will find some way to **** it up, taking the 'agreements' on trust, doing all the heavy lifting and then watching as the Chinese waltz in and scoop up the goodies.

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"**** it up" is likely the FO strategy in this case. Given Chinese proclivity for hoovering up natural resources, a spoiling action would seem to be appropriate. It's not as if we can compete on even terms!

Enough of Europe, though. Despite the eurozone's overwhelming ability to set the tone in terms of global investor sentiment, other economic indicators deserve attention  not least the price of oil.

Brent crude hit a nine-month high on Friday, breaking through $125 (£79) a barrel. While the black stuff remains $24 below the all-time nominal peak of July 2008, it is now above those levels in terms of both sterling and the euro. Oil prices are up 14pc since the start of the year. That's obviously bad news for the big Western energy-importers, the UK included, that are struggling to generate sustainable economic recovery.

Oil is soaring, we're told, because the International Atomic Energy Agency (IAEA) has just issued a report on the nuclear ambitions of Iran, the world's third-biggest crude exporter. Responding to European and US sanctions on its oil exports, due to bite in July, Iran refused inspectors access to the Parchin military complex where the IAEA has "reason to believe" a nuclear detonation device has been tested. As such, the risk of near-term anti-Iranian military action has apparently just risen sharply, not least because a US presidential election is looming into view.

Iran is obviously feeling emboldened. With the US withdrawing from Iraq, Tehran has warned that, in a bid to stem "outside meddling" in its affairs, it might try to disrupt energy exports from the Persian Gulf. This is no empty threat. Iran controls the northern shore of the Strait of Hormuz, the 20-mile wide pinch-point through which passes daily over a third of the world's seaborne oil shipments.

While the escalation of any kind of tension in the Middle East is obviously a serious matter, I don't accept that is why crude prices are high. The real reason perhaps less interesting, but no less important for that  is simple demand and supply. Global crude use is soaring, while the most important oil wells on earth are rapidly depleting.

In 2001, the world consumed 76.6m barrels of oil a day. Last year, just a decade on, global oil use was a hefty 89.1m barrels daily, 16pc higher. In 2011, the world economy was sluggish, with global GDP growth of 3.8pc, down from 5.2pc the year before. Yet world oil use still rose almost 1pc in 2011, with crude averaging $111 a barrel, more than 40pc up on 2010.

The International Energy Agency (IEA), the energy think-tank funded by oil-importing Western governments, tells us that crude demand is "declining remorselessly throughout the OECD [countries]". Given that the Western economies remain weak and the eurozone is heading for recession, the "advanced economies" are consuming less crude.

The fine print shows, though, that even IEA demand projections, which tend to be under-estimates, show OECD oil use falling just 0.9pc in 2012. Demand among the non-OECD countries, meanwhile, including the emerging giants of the East, is forecast to rise 2.8pc. Total global crude consumption, then, is still set to increase by another 1pc this year, mimicking the trend of 2011.

The "demand destruction" thesis is useful for Western governments desperate for cheaper oil  and it used to be true.
Not so long ago, OECD oil use was so important that a Western demand slow-down was enough to lower global crude prices, so helping us recover. But rampant non-OECD demand now accounts for half the world total  and rising. Chinese oil consumption has recently surged at an astonishing 7pc-8pc per annum and the People's Republic is now second only to the US in terms of overall oil use. Misguided Western attempts to print our way out of trouble using QE are also boosting crude demand and pushing up prices, as savvy investors seek an "anti-debasement" hedge.

On the supply side, while attention focuses on geopolitical flare-ups, the important trends relate to geology and finance. Since the 1960s, the discovery rate and size of new oil and gas fields has fallen markedly. More than four-fifths of the world's major fields are beyond peak production. The output of the world's largest 580 oil fields is declining at a 5.1pc annual average. Strategic oil traders now worry aloud about falling pressure at Saudi's Ghawar, Cantarell in Mexico and other giants fields. The credit-crunch, meanwhile, severely cut investment in exploration and well development, which is likely to have long term supply implications.

While there's lots of hype about tar sands and shale fuels, these new technologies often expend more energy than they create, while causing horrendous environmental and water-supply problems. Conventionally-produced crude will remain absolutely critical, and demand for it will spiral, until mankind bans the internal combustion engine, outlaws ammonium-based fertilisers, dismantles the global pharmaceutical industry and learns to live without plastic. I can't see that happening anytime soon.

Geo-political issues are important, of course. A major Gulf conflict would obviously see oil prices spike. But crude is now expensive not due to political argy-bargy but because of the fundamental truths of demand and supply. Meanwhile, Western share prices keep rising.

Click to expand...

The price of fuel at the pumps in UK has also increased because the pound is somewhat lower in value against the dollar than it was 2 years ago.

For Gods (insert any other deity, this is a non-specific denominational post and the use of the word God is simply intended to convey the impression of the deity of the individuals choice) sake dont upset (Ras) Putin. He'll murder us all in our beds. Or a Gulag.

...
Geo-political issues are important, of course. A major Gulf conflict would obviously see oil prices spike. But crude is now expensive not due to political argy-bargy but because of the fundamental truths of demand and supply. Meanwhile, Western share prices keep rising.

Click to expand...

Last time I looked into it in detail the oil price was about a third higher than it should be based on supply and demand, it's more a matter speculation and a general lack of economic confidence leading to hedging in commodities.